Howard Schneider, Ann Saphir and Bianca Flowers
WASHINGTON (Reuters) – Evidence supporting a ‘soft landing’ for the U.S. economy, in which inflation falls without massive job losses, Fed Vice Chair Lai Al Brainard said in a speech on Thursday that growth appears to be on the way, ruling out any clear policy preference at the Fed’s upcoming meeting, but pointing to signs of slowing growth.
“Inflation has been declining over the past few months against a backdrop of modest growth,” Brainard said in prepared remarks, with “significant weakness in manufacturing” and consumer spending rising. 2023.
In addition, she said the full impact of the Fed’s aggressive rate hikes last year had yet to be felt. The U.S. central bank raised the benchmark overnight interest rate by 4.25 percentage points to the current 4.%-4.40% range to combat inflation climbing to 25 year highs.
“The full impact on demand, employment and inflation of the cumulative austerity that is brewing is likely to be yet to come,” Brainard said in a speech at the University of Chicago’s Booth School of Business.
Meanwhile, Brainard pointed to trends in prices, wages and profit margins that suggest inflation is slowing and is likely to be nearly three times the Fed’s preferred measure of its 2% target
Meanwhile, the US unemployment rate is at a low 3.5%.
“A sustained slowdown in aggregate demand is still likely to boost continued job creation amid loosening labor markets and lower inflation,” Brainard said. ” Further comments before Jan40-Feb. 1 meeting.
In his final pre-meeting remarks as a senior Fed official, Bray Nader gave little direct guidance on the meeting’s outcome, suggesting the central bank would continue to “bring policy rates closer to a sufficiently restrictive level” for further hikes, but did not say whether she would favor only A 25 percentage point hike, as investors are currently expecting.
Even as the Fed analyzes its progress on inflation, she says she will “stay the course “.
“Even with the recent easing, inflation remains high and policy will need to be restrictive enough for some time to ensure a sustained return to 2 percent,” Brainard said .